Within our first with-profits funds article we analyzed simulation results of a fixed Strategic Asset Allocation (SAA) and dissected the risk and return drivers of with-profit funds within a static SAA policy. In this paper, we continue our discussion and focus on the costs and benefits of including equity options of various strikes to mitigate drawdowns.
Hedging strategies were previously covered in a broader setting in the article, “Time to Hedge” where six key steps are used to analyze the costs and benefits of hedging programs. This article focuses specifically on step three where we discuss how analyzing different strategies using a Monte Carlo engine can provide meaningful insights.
You can read more about simulating equity option strategies and their impact on capital and dividends in the whitepaper below.